Company Perspectives:

Perkins is a mid-scale family restaurant company serving abundant portions of good food featuring signature items for breakfast, lunch and dinner while guaranteeing great service in a comfortable, friendly atmosphere.
With our employees and franchisees, we will deliver the "Perkins Promise" and provide a competitive return to our investors.

Company History:

With over 450 restaurants throughout the United States and Canada, Perkins Family Restaurants, L.P. is a full-service, family-oriented chain of mid-priced eateries. In the early 1990s, it ranked among the top five chains in the family-dining segment of the restaurant industry. Originally conceived in the 1950s as a pancake house, the Perkins menu has grown to include more than 100 breakfast, lunch, and dinner items. By the mid-1990s, most locations also featured muffins, cakes, pies, cookies, and pastries prepared at in-store bakeries. The chain is comprised of 134 company-owned units and 331 franchised restaurants. Chainwide sales totaled $678 million in 1996, $235 million of which was retained by the Perkins organization.

Operated as a master limited partnership since 1986, Perkins was on the verge of becoming a wholly owned subsidiary of The Restaurant Company (TRC) in the fall of 1997. Founded as Tennessee Restaurant Company in 1986, TRC had owned a significant stake in Perkins since acquiring the Memphis-based chain that same year. Donald Smith served as chairman and CEO of both TRC and Perkins. In 1997 TRC, which already owned 48 percent of the limited partnership through its Perkins Management Company subsidiary, offered to buy the remaining publicly held shares of the company for $14 each. The deal was subject to a vote by shareholders and was expected to be completed by the end of 1997.

Post-World War II Origins

The Perkins chain was founded by William Smith, but it takes its name from Ohioans Mat and Ivan Perkins. Smith launched his first Smitty's pancake house in Seattle, Washington, in 1957, featuring his own special pancake recipe. The Perkins brothers adopted Smith's recipes and took them to Silverton, Ohio, a suburb of Cincinnati, in 1958, where they opened the first Perkins Pancake House. While similar in all but name, the two restaurant concepts were separately owned and operated throughout the 1950s, 1960s, and most of the 1970s. Franchises under both the Smitty's and Perkins names were sold throughout the Midwest during the ensuing decade.

Though Perkins's food was low-priced--checks averaged $1 per person in the early 1960s--it was not a run-of-the-mill pancake house. The menu included more than two dozen kinds of pancakes and waffles prepared by white-hatted chefs. Pancake choices included the standard buttermilk cakes, as well as potato, banana, curried tuna, "toad-in-the-hole," and Swedish varieties. Waffles were made with strawberries, coconut, butter pecan, and many other nontraditional ingredients. The Perkins brothers added sandwiches to their menu in the early 1960s. Restaurants were decorated in a colonial theme, featuring lantern-style light fixtures and Early American furnishings.

In 1967 Wyman Nelson, a major franchisee headquartered in Minneapolis, Minnesota, began to emerge as a leader of the rather loose-knit organization. That year he expanded service to 24-hours, seven-days-a-week, and changed the name of all his restaurants throughout the state to Perkins "Cake & Stake" to reflect the addition of a dinner menu to the restaurant's offerings. Nelson also mounted an advertising campaign to publicize the changes. Over the course of the ensuing decade, Nelson gradually took over the Smitty's and Perkins chains. In 1969, he purchased the right to develop the dining concept throughout Minnesota. Seven years later, he acquired a nationwide license to the Perkins concept. He completed his consolidation effort in 1978 with the outright purchase of the Perkins trademark and flour distribution rights.

Acquisition by Holiday Inns

Less than a year after Nelson's consolidation, Perkins "Cake & Steak," Inc. was itself acquired by Holiday Corp., parent company of Holiday Inns, Inc. The purchase was part of Holiday's late 1970s/early 1980s diversification into both restaurants and casinos. By 1981, Perkins had 258 restaurants in 29 states. In 1983, the hotel chain moved Perkins' headquarters to its Memphis, Tennessee hometown, where Perkins main office remained through the mid-1990s. Though it remained marginally profitable, Perkins did not fare particularly well under its new ownership structure. James Scarpa of Restaurant Business described the chain as "dated and disorganized" in a 1990 article, particularly noting its "downscale coffee shop look."

Perkins' ownership transferred again in the mid-1980s, when restaurateur Donald N. Smith, a member of Holiday's board of directors, took the 312-unit chain private. At the time, Perkins' balance sheet was a reflection of its decor; it was netting only $3 million on revenues of $103 million. But Smith (no relation to the founder) believed the restaurant chain had excellent potential for growth and profitability. Smith's resumé included executive positions with several well-known restaurant chains. He was credited with developing Pizza Hut's Pan Pizza and Personal Pan Pizza and launching McDonald's breakfast menu. As CEO of Burger King in the late 1970s, he doubled profits on a 50 percent increase in chainwide sales.

With the cooperation of Holiday Corp., Smith formed an investment group dubbed Tennessee Restaurant Company and purchased the chain for about $70 million in 1985. In 1986, he transformed the company into a limited partnership, selling a minority stake to the public. A portion of the funds raised were invested in remodeling and an almost complete overhaul of the menu. New and renewed units featured ceramic tile, green neon, and a solarium. One important and lasting addition to the menu was the Perkins in-store bakery, launched in 1986. The restaurant made omelets, not pancakes, the new featured breakfast item, and put a stronger emphasis on the lunch menu, adding cheese melt sandwiches and specialty salads. The changes boosted check averages, same-store sales, overall revenues, and corporate profitability. By the end of the decade, Smith had tripled Perkins' net to $9.7 million on a 50 percent increase in sales to $150 million.

Growth Targeted in 1990s

Having stabilized the chain, Smith focused on expansion in the early 1990s, hoping to double the number of restaurants by 1995. Perkins' growth plan, dubbed the "I-95 Strategy," concentrated new units in the vicinity of this major East Coast thoroughfare. The chain also opened its first international restaurant in Ontario, Canada--which not coincidentally was Smith's native province--in 1988. Though it had dozens of company-owned units, Perkins continued to emphasize franchising as its key growth vehicle during this period. Corporate restaurants were used as testing grounds for new menu, decor, and marketing ideas.

Driven in large part by expansion, Perkins' sales increased by more than 40 percent from $180.5 million in 1990 to $252.8 million in 1996. But the company's bottom-line performance did not match that top-line growth rate. In fact, net income declined from a high of $15.4 million in 1992 to less than $10 million in 1995 before recovering somewhat to $13.5 million in 1996. Perkins' erratic profitability was matched by an unstable stock price. Shares in the limited partnership, which started trading publicly in 1989 at around $13, grew to over $15 late in 1993 before plunging to less than $8 in late 1994. Steady dividend payouts helped boost the stock back over the $13 mark early in 1997, but that was before stakeholders learned that the partnership would become subject to corporate taxation beginning in 1998. In June 1997, the company announced that tax payments would likely reduce or even eliminate partnership dividends, news that sent Perkins' already battered shares into a mid-year slide to about $10. TRC's late 1997 offer of $14 per share to take the company private helped rebound shares to $13.81 by that September. The agreement had yet to win approval by public shareholders and TRC's lenders in the fall of 1997, but appeared headed for ratification by both groups.

The Mid-1990s and Beyond

Perkins' 1996 annual report outlined a multifaceted program for future growth. All the initiatives were tested in company programs and slated to be adopted in franchises in the late 1990s. A new round of remodelings continued the chain's upscale trend. Company-owned sites refurbished during 1995 and 1996 featured garden rooms, "libraries" with bookcase wallpaper, sport-themed rooms, and sunrooms. Perkins arranged financing to assist its franchisees in the renovation process. New market research and customer satisfaction surveys were adopted as well. Perkins even tackled the difficult task of improving productivity in a service business. It combined backroom efficiencies, manager incentives, and a new scheduling system to increase the number of customers served per hour of labor. A closely related program sought to reduce turnover and thereby trim hiring and training costs.

Still led by David Smith in 1997, Perkins' management hoped to parlay its bakeries into increased traffic, increased sales, and even new dining concepts. The company started testing stand-alone bakeries and cafes in 1995. Both formats were designed to adapt Perkins to food courts in a wide variety of settings, from malls to colleges to military bases.

Perkins' family orientation has sharpened its focus on serving children--after all, kids have been called "the status symbols of the 1990s." In 1996 the company began testing KidPerks, a program that incorporated a menu expansion and new entertainment options. In place of the coloring page and crayons typically offered to placate children while they waited for dinner to be prepared and served, KidPerks offered hand-held computer games, comic books, Etch a Sketch toys, and sonic books, as well as free popcorn to quiet growling stomachs. With successful KidPerks programs in place at company-owned restaurants throughout Minnesota, Nebraska, North Dakota, Oklahoma, Tennessee, and Wisconsin, Perkins hoped to bring the concept chainwide by the end of 1997.

As it prepared to return to private ownership, Perkins Family Restaurants appeared poised to pull out of its earnings slump and return to profitable growth. Of course, it will be under no obligation to report financial data as a privately held corporation.